American Airlines Bankruptcy Judge Neglects To Rule On AMR Exit Plan

In the latest mini-development in the American Airlines/US Airways merger snafu (brought to us by our friends at the DOJ), the bankruptcy judge neglected to rule on the motion for AMR to leave bankruptcy.

I can’t say I’m an expert on bankruptcy law, but there are a bunch of interesting propositions here.  First, from something I read earlier, American is supposed to be past the statutory limit a company can stay in bankruptcy protection.

The judge also has the right (I believe) to allow the creditors to submit reorganization plans unless AMR successfully petitions the court to extend their exclusive right here.

AMR could also exit bankruptcy protection as a stand-alone airline, which would likely require them to propose a new plan, since the current one is based on equity in a combined airline as opposed to just AMR’s assets.

There are a number of theories on what American Airlines does if they’re barred from merging by the DOJ.  A few of them are noted in this WSJ piece.

If, as suggested in the article, AMR were to grow 20% at its five hubs, that’s a massive amount of capacity to dump on the market.  While AMR is profitable right now, that’s only at the rate of a few hundred million a quarter.  A drop in price on some routes is surely to come if that much capacity were to get added to the market.  Couple that with the fact that American would likely be operating a lot of those flights initially without a lot of paying customers and that just smells like a recipe for disaster to me.

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